The Complete Guide to Legal Planning for New York Parents
A step-by-step, practical guide of everything you need to know and everything you need to do to make sure your family is taken care of if tragedy strikes.
Estate Planning for Families with Children
Planning for parents with young children is some of the most important planning that we do. Because children cannot support themselves, legal and other protections for them are all the more critical. We look beyond your legal documents to ensure that your children’s financial, health, emotional, and educational needs would be supported.
Estate Planning for Parents: Preserve Assets for Your Growing Family
We help busy parents implement a comprehensive legal plan to protect their children, preserve their assets, shield their privacy, and minimize their taxes. We pride ourselves not just on our technical expertise, but on the strong, trusting relationships we develop with our clients. Legal planning can involve a host of emotions and sensitive topics. Talking about money and family relationships isn’t always easy, but a failure to consider these factors can doom the most sophisticated estate plan.
We make it easy to get your plan done with a modern approach to servicing clients. Few people are busier than parents raising young kids in New York City. We make it simple to protect your family with online scheduling, video conferences, and constant connectivity.
Why Parents Need to Plan
Planning to protect young children in the event that both parents pass away is a weighty responsibility. Effective planning requires not only specific legal documents, but also making sure that a designated adult would have the financial and practical information they would need to provide the child with the best support possible.
Planning for the care of young children is made more challenging – and more important – by the suboptimal rules that apply when a minor child receives an inheritance. Children under the age of 18 are not legally capable of managing the assets themselves, so assets left to a child are supervised by a court until the child turns 18. The court appoints someone to administer the assets on behalf of the children, and that person must file annual reports with the court that document the value of the assets being held for each child, how those assets are invested, and how the money is being spent, for example, the amount spent on childcare, clothing, field trips, etc. This requirement exposes detailed information about your child’s expenses to public view, making your children vulnerable to identity thieves and other predators.
When your child turns 18, he or she must petition the court to lift the guardianship, and all the remaining assets are then transferred to your child’s name. The child would then have unfettered access to the funds, potentially leading to bad spending habits and a poor work ethic and making your child attractive to malingerers or others who may seek to take advantage of them.
An additional problem can arise if you have more than one child. Assets allocated to one child under a guardianship cannot be used for the benefit of your other children. This could result in an unfair allocation of assets if one child was injured or developed a serious illness, incurring large medical expenses.
Fortunately, these problems can all be avoided by putting in place a comprehensive legal plan.
Protect Your Family with a Comprehensive Plan
Designate a Guardian
The best way to make sure your children are well-cared for if you’re not there to take care of them yourself is to name a responsible, trustworthy friend or family member to serve as the children’s guardian. A guardianship designation not only ensures that your children would be in good hands, but can also prevent messy, public family disputes that can add to the difficulty your children would experience during an extremely tragic time.
Your guardianship designation should be included both in your will and in a separate standby-guardianship document. Because a will takes effect only upon death, the guardianship designation in that document is not sufficient if a guardian is needed as a result of your incapacity, for example, if you were unconscious from a car accident. A standby guardianship document allows the person designated therein to serve as guardian under certain circumstances. A standby-guardianship document also allows the named guardian to serve immediately, while the guardian named in your will can only legally serve after your will is probated and the court appoints the guardian named in the will. A standby guardianship document can fill the gap between the time of a parent’s death and the date the will is probated.
What happens if no guardian has been named by a child’s parents? If more than one person requests to be the child’s guardian, a lengthy, public court battle could ensue. In the worst case scenario, the court could assign your children to state custody while the dispute is being resolved; courts have been known to do precisely that where guardianship is unclear.
Because we aim to make sure your children have the best case possible, all of our plans include comprehensive guardianship planning.
Solution for protecting your Children execute a Will in which you designate a guardian and alternate guardian for your children. Also execute a Standby Guardianship Designation, which designates who would take care of your children if you became incapacitated. A Standby Guardianship Designation also ensure your child is not without a guardian during the period between your death and the time a court formally appoints a legal guardian.
Prevent Unwise Spending
Is it a good idea for an 18 year old to be handed a large sum of money with no supervision or restrictions? We don’t think so either, but that’s exactly what can happen without proper estate planning. Sure, your nine-month-old is a perfect angel now, but no one really knows if their child will have great judgment decades into the future. Even the most mature children go through phases where they make questionable decisions. Having access to money at a young age can result in a slew of problems. Squandering an inheritance, developing a poor work ethic, and becoming the target of predators and con artists are all more likely when a young person is given access to a substantial amount of money at a young age.
If handing over a large sum of money to your child when he or she turns 18 doesn’t sound like a good idea, you can delay your children’s access to their inheritance by leaving your assets to a trust. You would designate a trustee of the trust, who would administer the assets for the benefit of the children until they reach an age you specify. (We find most parents choose age 30; we have yet to have a parent tell us they would choose any age younger than 25.)
Protect Your Child's Privacy
Would it bother you if detailed information about your child’s inheritance and how it was being spent was open to the public? That’s a rhetorical question, of course, because any sane person would have a big problem with that scenario.
What most parents don’t realize is that this is precisely what happens when you leave assets to your child outright. Because children under the age of 18 (legally known as minors) are not legally permitted to own assets, a court appoints an individual to administer the inheritance of anyone under the age of 18.
Each year, the appointed person is required to complete and file an “accounting” of the assets held for the child, which must include information about distributions, investments, and financial institutions where the funds are held. This “accounting” is then filed in with the court in the public record, available for any stranger off the street to come in and see.
Just by reading the news, you know how dangerous it can be for sensitive financial information to get in the wrong hands. Having financial details of your children’s assets available as part of the public record can leave your kids vulnerable to identity thieves and other predators.
There are two ways you can keep your kids’ inheritance out of the public record. You can leave your assets to a trust for the benefit of your children, or your will can direct that assets left to your children be administered by a custodian (a friend of relative).
Ensure Fair Division of Assets
If assets are left to your children directly, the assets will be held in separate accounts for each child until they turn either 18. In many situations, this method of dividing the assets isn’t a problem. If the children are close in age and have similar financial needs, then allocating the assets equally may result in a fair outcome.
If the children are not similar in age, however, or if one of them incurs large medical expenses as a result of injury or illness, then dividing assets equally among them could pose a very big problem. Suppose one child is 16 and the other is 21 upon the death of the parent and the 21 year old had his entire college education paid for. The child who is 16 will have to use most of his inheritance to pay for college, while the 21 year old will essentially receive a windfall. In another scenario, one child might develop a disability or other medical issues. The child’s medical or therapeutic expenses could deplete that child’s account without affecting the other children’s finances.
As parents, you provide financial support to your children based on each child’s needs, which often doesn’t result in an equal allocation. Leaving your assets directly to your children doesn’t allow for this type of adjustment; however, you can provide for flexibility in your will by leaving your assets to your children in a trust. The trustee who you designate would be able allocate the assets to your children according to each child’s need.
This flexibility allows the trustee to save money for the younger child’s education or allocate money to a special fund if one of the children develops a disability. When the youngest child reaches a specified age (usually 30), the assets remaining in the trust are generally divided equally among the children.
You’ve worked hard to make sure your family would be financially taken care of if something happened to you. By failing to plan appropriately, a large chunk of that money could end up going to the government – not to provide for your loved ones.
The federal estate tax (and soon the New York estate tax) exemption is currently $5.49 million per individual. This means that your family will only have to pay estate taxes if your estate exceeds this amount.
To determine whether you would be subject to the estate tax, add your net worth to your life insurance proceeds. This will give you the value of your estate for estate tax purposes. If this number exceeds or comes close to $5.49 million, your family may have to pay estate taxes. Make sure to include the value of your life insurance proceeds, since this pushes many families with young children above the estate tax threshold.
If your estate exceeds or comes close to the estate tax threshold, you should talk to an estate planning attorney about ways to minimize or even eliminate the tax for your family. Even if your estate would not currently exceed $5.49 million, your family may be affected by the estate tax in the future if you have several million dollars and are continuing to accumulate wealth. By planning early, you can take advantage of strategies for minimizing your family’s estate tax burden in the long run. Those strategies may not be available to you if you wait until your net worth increases.
Making sure your family is protected in your absence requires more than executing legal documents. It is just as important to provide practical guidance to those you’re entrusting to support and care for your children. Leaving instructions for your guardian on how you want your children to be raised, information about their special medical or emotional needs, and religious or other traditions that are important to your family are all essential to ensuring that your children would have the best care and support possible.
In addition to your legal documents, we provide you with the tools to address these concerns. All our clients have access to an online library of forms and templates for everything from organizing assets to writing a letter to your guardian.